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Rock on: irritating Coles ads help boost sale -

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Rock on: irritating Coles ads help boost sales
David Taylor reported this story on Thursday, October 25, 2012 12:18:00

ELEANOR HALL: And staying with the economy, you might find Coles supermarket advertisements hard on the ears but they do appear to be working.

The owner of Coles, Wesfarmers, released its first quarter sales results today and sales for Coles were up 3.7 per cent.

Our finance reporter David Taylor joins us now with the details.

So David, are those irritating Coles ads really behind this improvement in the supermarket chain's financial performance?

DAVID TAYLOR: Eleanor, it looks like they are. Now back in 2007 Wesfarmers got together - that's the owner of Coles - and said we can do better than Woolworths in terms of their supermarket strategy. They initiated a five year turnaround strategy and this year of course is the fifth year of that turnaround strategy and if you compare quarterly sales between Woollies and Coles today, Coles is doing better - up 3.7 per cent compared to Woollies 2.3 per cent.

Now all of the retail divisions continue to make good progress in implementing their strategic plans as far as Wesfarmers is concerned and Richard Goyder said that it has been a pleasing performance and in fact it includes 17 consecutive quarters of growth in customer transactions.

Now, there have been some battle scars though from the price wars.

Food and liquor price deflation was 3.2 per cent during the quarter and Coles saw price deflation in 12 of the last 13 quarters. Fresh produce prices increased though in the quarter.

ELEANOR HALL: Now Wesfarmers owns more than just supermarkets. How did the rest of the group perform?

DAVID TAYLOR: Bunnings store sales growth increased 2.5 per cent for the quarter so they were pleased with that. K-Mart was lifted by sales I women's wear and footwear. Sales at Officeworks were flat, Target sales growth was disappointing and you'd be interested to know that Wesfarmers also, believe it or not, has a coal mining business.

The company has indicated there are a number of headwinds facing that business though. This is Wefarmer's managing director Richard Goyder speaking to analysts earlier today.

RICHARD GOYDER: But you know, we've just got, this is totally consistent with the outlook that I gave in August. We've got accommodation now, falling prices, continued high exchange rate, the lag on Stanwell, now we got carbon tax this year, we've got in increased state royalty so it is a challenging time now just for us but I suspect for all coal producers at the moment in Australia.

ELEANOR HALL: That is Wesfarmers managing director Richard Goyder.

Well, Australia's resources sector, David is at mercy of the global economy. What's the latest on the health of the world's largest economy?

DAVID TAYLOR: Well, the US Federal Reserve meets once a month, like our Reserve Bank meets on the first Tuesday of every month, they'll be meeting on Melbourne Cup Day, but the US Federal Reserve has had its second day of meetings and its come up with a statement telling the world how its economy is doing and they've said that the US economy is growing modestly but that unemployment remains elevated and that's precisely what the US Federal Reserve is trying to bring down.

Now that all sounds fine but what is unfortunate is that the US Federal Reserve is currently pumping in $40 billion monthly purchases of mortgage-backed securities.

So when you consider billions of dollars going to the US economy now, they still get modest economic growth and unemployment remains elevated, you're wondering what it's going to take to bring the US unemployment down, you are wondering what it is going to take to get the US economy working again.

It's a big question.

ELEANOR HALL: Thanks for leaving us with that one. David Taylor, our finance reporter.